Monday, January 12, 2009

Constellation Exits American Whiskey, Sells to Sazerac.

The gist of the deal, announced today by Constellation in a press release here, is that it is selling its portfolio of 'value brands' to Sazerac, along with production facilities in Bardstown and Owensboro, Kentucky.

Significantly, one brand in the sale is not considered a value brand but, rather, a super-premium. It is Ridgement Reserve 1792, a bourbon that competes in the segment with Beam's Knob Creek and Maker's Mark, and Brown-Forman's Woodford Reserve.

The company's other American whiskey products, such as Very Old Barton bourbon, Ten High bourbon, and Imperial American blended whiskey, which are considered value brands, were also sold. This means Constellation has completely exited the American whiskey segment. It has, however, retained entries in the single malt scotch (Balblair, Speyburn) and Canadian whiskey (Black Velvet) segments.

The Bardstown production facility, the recently-renamed Tom Moore Distillery (formerly the Barton Distillery), is a whiskey distillery with rackhouses and a bottling house. The Owensboro facility has rackhouses and bottling, but no distillery.

The net result of this transaction is that American whiskey production has become more consolidated. There is now one less producer of American whiskey.

Constellation is a public company, bound by disclosure requirements, and its press release is admirably detailed and complete. Sazerac, which also owns the Buffalo Trace Distillery, is a private company and isn't required to tell us anything. So far they haven't, which is not to say they won't. Buffalo Trace, under the direction of President Mark Brown (who is now Sazerac's President and CEO as well) has long been very open and transparent about its activities.

We have many questions that we hope Brown will be quick to answer, most significant being whether or not they will continue to operate the Tom Moore Distillery.

As this news is just literally breaking today, one should also consider that there may be other shoes not yet dropped. It is not unusual in these situations for there to be a subsequent swift resale of some of the assets, typically to one of the other usual suspects such as Bardstown's Heaven Hill or St. Louis's Luxco. Even some much smaller players, such as Bardstown's Kentucky Bourbon Distillers Limited, may be in the mix.

Considering that Buffalo Trace is one of the few distilleries in Kentucky and Tennessee that still has excess production capacity, why do they need another distillery and two more bottling houses?